This is a similar problem to being unable to delete contacts. All you get is the An Error Has Occurred message that doesn't do anything.
I was able to fix all these problems with the following guide from the hotmail help faq but I think maybe the best suggestion was to use a different browser. Anyway, if you want to fix that bug in Internet Explorer, this is the procedure:
Start Internet Explorer, click Tools, and then click Internet Options.
On the General tab, click Delete Cookies.
When you're prompted to confirm, click OK.
Click Delete Files, select the Delete All Offline Content check box, and then click OK. This step may take several minutes if you have many files.
Click the Advanced tab, and then click Restore Defaults.
Click the Security tab.
Click the Internet icon, click Default Level, and then click Apply. Repeat this process for the Restricted and Trusted Sites zones.
Click the Trusted Sites icon.
Click Sites, and then clear the Require server verification for all sites in this zone check box.
Under Add this Web site to the zone, type *.hotmail.com, and then click Add. Repeat this process for *.passport.com and *.msn.com. Click OK.
Click the Privacy tab, and then click Sites. If you don't see the Privacy tab, go to the "Configure your security software" step.
Under Address of Web site, type Hotmail.com, and then click Allow. Repeat this process for Live.com, Passport.com, and MSN.com. Click OK.
On the Privacy tab, click Default if the privacy setting is not already set to Medium